This article discusses the following:
Why do we need a UK mileage report?
If companies are purchasing fuel in the UK or paying mileage allowance to their employees for using their own vehicles for work purpose, companies are entitled to reclaim VAT on mileage expenses.
Companies can reclaim VAT as per the mileage rates specified by the UK's tax, payments and customs authority, HMRC. The rates specified depend upon the type of fuel (Diesel, petrol or LPG) that is being used for the vehicle.
Which parameters are taken into consideration?
Reclaim on VAT mileage
As a business, companies can reclaim the VAT on their employees’ mileage expenses if they’re paying their employees a mileage allowance for using their own vehicle for work. Companies will only be able to reclaim VAT on the fuel portion of the mileage claim.
Advisory Fuel Rates
For calculation of fuel portion of a business trip, a simple method is applied by using HMRC published Advisory Fuel Rates. The rates are published by HMRC to cover the amount which a company can pay tax free to the person who drives car for business purposes and pays the money from his own pocket towards fuel cost.
The rate varies based on the type of fuel (petrol, diesel or LPG) and engine size for your car, van or motorbike. For hybrid cars one can use the relevant section prescribed by HMRC.
Link to the dedicated website of HMRC: https://www.gov.uk/guidance/advisory-fuel-rates
Documents to support claiming VAT on mileage
An employee must keep a record of fuel receipts/documents, if companies want to claim the VAT on the mileage expenses. It is usually advisable to have a fuel receipt of at least £10.00 for every 100 miles claimed.
How does Rydoo help companies in the UK reclaim VAT on mileage expenses paid out?
Rydoo will provide you with a yearly report (up to date) of all the mileage expenses with fuel that are created for UK branches in your account.
The report also details the actual fuel receipts uploaded by the user, actual VAT that can be claimed based on fuel receipts uploaded by the user, Maximum number of fuel receipts needed to claim full VAT on fuel, maximum potential to reclaim VAT and total VAT to reclaim
Where is this report accessible?
The UK mileage report is accessible in the Rydoo Insights module under the compliance section. To enable or gain access to the Rydoo Insights module please contact your success manager or account executive.
How is the VAT on mileage calculated?
VAT on mileage = ( advisory fuel rate x business miles claimed ) / 6
The above equation is divided by 6, as the advisory fuel rates is given as gross and already includes VAT which is 20% (i.e. 20/120=6)
Let’s consider an example where an employee drives their own car (1.6 litre petrol engine) for 1,600 miles for business purpose in February-2020.
In this case the company would
pay the employee a total of £720 in mileage expenses
£0.4500 x 1,600 = £720
be able to reclaim £37.33 back in VAT
as of the writing of this article ( 1st September 2021) the advisory fuel rate for a petrol car with 1600 cc engine is 0.1400 per mile
( 0.1400 x 1,600 ) / 6 = £224 / 6 = £37.33
The company will be treated as having made a purchases of fuel of £224 (inclusive of VAT) and will be able to reclaim £37.33 in VAT.